Cash seizure and forfeiture

JULY 2013 

PART 5

CASH SEIZURE AND FORFEITURE  

9A.123 Introduction

Under PoCA02, application to a magistrates’ court can be made for the seizure, detention, and forfeiture of cash. Cash may be seized on reasonable suspicion that the cash represents the benefit from unlawful conduct or is intended for use in unlawful conduct (see paragraph 9A.125).  The cash would then be held pending application for it to be forfeited (see paragraph 9A.127 and 9A.129).  Where no forfeiture order is made, an application for compensation can be made by the person to whom the cash belongs or from whom it was seized [note 1], although this is rarely done.

The following paragraphs provide guidance on dealing with these matters: 

 

9A.124 Definition of cash

For the purposes of the provision relating to the seizure (see paragraph 9A.125) and detention (see paragraph 9A.127) of cash, cash means; 

  • notes and coins in any currency,
  • postal orders,
  • cheques of any kind, including travellers’ cheques,
  • bankers’ drafts,
  • bearer bonds and bearer shares,

found at any place in the UK [note 2].

 

9A.125 Seizure of cash

A police officer, customs officer or accredited financial investigator has the power to seize cash (see paragraph 9A.124) if there are reasonable grounds for suspecting the cash is recoverable property (see paragraph 9A.89) in respect of a recovery order (see Part 4) or is intended to be used in unlawful conduct [note 3] (see paragraph 9A.87). The whole of a cash amount may be seized if it is not practicable to separate it from the suspected cash.

The minimum of amount of cash that can be seized is £1000 [note 4].

 

9A.126 Contact enforcement authority for information

Where the official receiver is aware that an insolvent’s cash has been seized  contact should be made with the enforcement authority as soon as practical (see paragraph 9A.125), providing a copy of the winding-up order or bankruptcy order and request: 

  • That the authority notes the official receiver’s interest in the cash.
  • Information on the circumstances leading up to the seizure of cash.
  • Any explanation offered by the insolvent to the authority.
  • Details of any third party claims on the cash.

 

9A.127 Detention of seized cash

Cash seized may be held for a period of 48 hours (not including weekends or bank holidays). Thereafter, it may only be held with an order of court, up to a period of two years, if the court is satisfied that there are reasonable grounds for suspecting that the cash is recoverable property (see paragraph 9A.89), and that there are reasonable grounds for suspecting that the cash is to be used in unlawful conduct (see paragraph 9A.87), and that either; 

  • continued detention is justified while the source of the monies is investigated or consideration is given to bringing proceedings, or,
  • proceedings have started and have not been concluded [note 5].

It has been held that to satisfy the first part of the test, the police need do no more than demonstrate their reasonable suspicion that the cash either is derived from unlawful conduct or that it will be used in unlawful conduct [note 6].

 

9A.128 Cash to be held in interest-bearing account

Where cash is detained in excess of 48 hours, it must be paid into an interest-bearing account and the accrued interest added to the sum to be forfeited or released [note 7].

 

9A.129 Forfeiture of cash seized

Cash forfeiture is the term used to describe the loss of cash seized without compensation.  An application for forfeiture may be made to the magistrates’ court by the holder of the seized cash. The court may make an order that the whole or part of the cash is forfeited if it is satisfied that the cash or part of the cash is;

(a) recoverable property (in respect of a recovery order – see paragraph 9A.89) [note 8], or

(b) intended by any person for use in unlawful conduct (see paragraph 9A.87) [note 9].

The cash is to be detained until these proceedings (including any appeal – which must be made within 30 days of the order for the forfeiture of the cash) are concluded [note 10].

Where the official receiver considers that the cash has been obtained as a consequence of unlawful conduct e.g. it is cash obtained through theft, then no objection should be made to the making of a forfeiture order. The official receiver should ensure that all parties are aware that any funds due to be returned to the insolvent at the conclusion of any proceedings are remitted for the benefit of the insolvency estate (see paragraph 9A.135).

 

9A.130 Forfeiture of cash seized – jointly held

Where cash is seized and it can be shown it is jointly owned, the share which the court considers is attributable to the excepted joint owner will not be forfeited [note 11], e.g. in the case of a joint bank account into which drug trafficking proceeds have been paid by one signatory and clean money, such as wages, by the other.  If the drug trafficker withdraws all the cash and it is subsequently seized, the court must distinguish between the clean and the dirty money and return the innocent share of the cash.

 

9A.131 Determining if cash is an insolvency asset – company

The first action the official receiver as liquidator should take, is to determine whether cash seized by an enforcement authority is a company asset.  Unless the cash was forfeited prior to the appointment of a provisional liquidator or winding-up order, or it can be shown to belong to a third party (see Chapter 31.0, Part 2 and paragraph 9A.144), it will form part of the company property.

 

9A.132 Determining if cash is an insolvency asset – bankruptcy

Where cash has been seized the official receiver should seek to determine whether the cash is an asset in the bankruptcy estate (see Chapter 31.0, Part 2).  If the cash was seized but not forfeited prior to the making of the bankruptcy order, and it does not belong to a third party (see paragraph 9A.144), then it will vest in the official receiver when he/she is appointed trustee [note 12] (see paragraph 9A.135).  Similarly, if the cash was seized after the making of the bankruptcy order, but it was owned or held by the bankrupt at the date of the bankruptcy order, then it will also be a vesting asset (see paragraph 9A.136). Evidence should be sought that the cash was held or owned by the bankrupt at the date of the bankruptcy, such as bank statements, a completion statement on the sale of property or a letter from the company involved in relation to compensation paid. 

Where the cash has only come into the bankrupt’s possession after the making of the bankruptcy order (but prior to discharge), or where there is uncertainty as to whether he/she held it at the date of the bankruptcy order, then the official receiver should consider claiming it as after-acquired property within the 42 day period (see paragraph 9A.137).

 

9A.133 Effect of an insolvency order on the detention of cash seized

Cash that has been seized but not forfeited (see paragraph 9A.129), and which would otherwise be an asset in an insolvency estate cannot be subject to further detention (after the initial or extended period for detention has expired – see paragraph 9A.129) without leave of the court [note 13] [note 14].

Where it appears on available evidence that the cash has been obtained as the consequence of unlawful conduct then the official receiver should not object to such an extension being sought and obtained, but should ensure that all parties (including the court) are aware of his/her interest in the monies (see paragraphs 9A.135 -139).

 

9A.134 Effect of an insolvency order on forfeited cash

Where a forfeiture order is made by the court (see paragraph 9A.129) prior to the making of an insolvency order, then the cash subject to forfeiture will not form part of the insolvent estate and any appeal must be brought within 30 days of the forfeiture order (see paragraph 9A.129).

 

9A.135 Action to be taken by official receiver where cash seized

Where cash has been seized prior to, or after, the making of the winding-up order or bankruptcy order, provided the cash was owned by the insolvent prior to the making of the insolvency order, the official receiver should take steps to ensure that his/her interest in the cash is noted by the authority that has seized it.  This is pending any further enquires that the official receiver needs to make to establish ownership (see paragraphs 9A.131 to 9A.132 and 9A.138).

Unless on available evidence it is clear that the official receiver has no claim to the cash seized as it was obtained through unlawful conduct, a letter should be sent to the magistrates’ court requesting that a copy of the winding-up order or bankruptcy order is placed on the court file. This is to ensure that court is aware of the official receiver’s interest in the cash seized.

 

9A.136 Action to be taken where cash seized after making of bankruptcy order and date of acquisition is unknown – or is known to be post-bankruptcy

Where cash has been seized after the making of the bankruptcy order and the date that the bankrupt obtained the monies is unknown, or is known to be post-bankruptcy, the official receiver should follow guidance in paragraph 9A.135, and additionally, he/she should claim the monies as after-acquired property [note 15] (see paragraph 9A.137 and Chapter 31.8).  Claiming the detained cash as after-acquired property will not prevent the authority holding the cash from continuing with forfeiture proceedings, it will merely ensure that where a forfeiture order is not subsequently made and the money is not forfeited, that the money will vest in the bankruptcy estate rather than the bankrupt.

 

9A.137 Claiming detained cash as after-acquired property

The official receiver as trustee should serve written notice on the bankrupt that the cash is claimed as after-acquired property (see paragraph 31.8.14) and notify the enforcement authority in writing [note 15].  Other interested parties to be served should include any third party with an interest in the money (see paragraph 9A.144) and the magistrates’ court (see paragraphs 9A.138 to 9A.143).  This claim must be made within 42-days of the official receiver, as trustee, becoming aware of the existence of the monies [note 16] (see paragraph 31.8.12).

It is possible that the enforcement authority may request that the official receiver makes no contact with the bankrupt about the investigation or monies seized, if this is the case, the official receiver may need to consider making application to the court for an extension of the 42-day period (see paragraph 31.8.15).

 

9A.138 Official receiver to seek direction of the court where the ownership of the cash seized is in doubt

Where the official receiver has insufficient evidence or any doubt that the cash belongs to the insolvent estate, (this is particularly likely where there is a third party also claiming an interest in the detained funds) then the official receiver should consider seeking the directions of the insolvency court [note 18] [note 19] on how to proceed.

Where the ownership of the monies is in dispute, the official receiver should request that the court order made provides for the monies to be held by the enforcement authority/court pending further enquiries (by the official receiver) to establish ownership.  A copy of the application should be sent immediately to the magistrates’ court requesting that it be placed on the file pending an outcome of the insolvency directions hearing. This is to ensure that the magistrates’ court is aware of the proceedings in the insolvency court and the official receiver’s interest in the funds seized.

If the insolvency court finds that the cash is an insolvency asset, then an application to the magistrates’ court should be made (enclosing a copy of the order made in the insolvency court), to request release of the cash to the official receiver, see paragraph 9A.140 to 9A.142.

 

9A.139 Application to magistrates’ court where forfeiture/further detention is disputed

Where the official receiver as liquidator or trustee, is satisfied on available evidence that the cash is an asset of an insolvent, an application should be made to the magistrates’ court for the release of the cash (see paragraph 9A.143). The application should outline why forfeiture or further detention is not appropriate, and request that the cash be remitted to the official receiver as liquidator or trustee for the benefit of the insolvent estate [note 17], see paragraphs 9A.140 to 9A.142.

 

9A.140 Application to magistrates’ court – where order specifies who to release cash to

At the conclusion of proceedings there is nothing in PoCA02 that requires that the enforcement authority who has seized the cash return it to any particular person.

If no further detention or forfeiture of the cash seized is made by the court, then the cash can be returned to whom it was seized from by the enforcement authority. The magistrates’ order may specify the person to whom it should be returned [note 24].

Where such a specification is made in the order the enforcement authority will not be able to depart from this order, and where the official receiver, as liquidator or trustee, considers the cash forms part of an insolvent’s estate an application should be made to the court for the order to be varied to specify that monies are paid for the benefit of the insolvent estate [note 17] see paragraphs 9A.142-143.  The application should be made in advance of any intention of the enforcement authority to release the monies.

 

9A.141 Application to magistrates’ court – order does not specify who to release cash to

Where the order of the magistrates’ court does not specify to whom the cash should be returned an informal request for payment of the monies to the official receiver by the enforcement authority will not be sufficient. This is because there is a risk that an interested party may make an application to the magistrates’ court for the release of the detained cash without the official receiver’s knowledge, resulting in a loss to the estate. The official receiver should therefore make a prompt application to the magistrates’ court that the funds are released for the benefit of the insolvent estate (see paragraphs 9A.142-143).

 

9A.142 Sanction needed to commence legal proceedings

Secretary of State sanction is required for the official receiver to commence or defend legal proceedings (see Chapter 29, paragraphs 29.24, and 29.35 to 37).

 

9A.143 Making application for the release of detained cash

An application by the official receiver for the release of seized cash must be made in writing, which can be by fax or letter to the court [note 20].  An application fee (currently set at either £200 or £500) will be payable, [note 25]. The permission of Technical Section is needed if the amount of the court fee will increase the debit balance above £500, see Chapter 29, paragraph 29.10.  The official receiver should telephone the relevant magistrates’ court to discuss the pending application, confirm the fee payable and to ascertain if anything further is required.  A date and time should also be agreed with the court for the hearing of the application.

A copy of the application and any evidence that will be presented to the court should be served on the bankrupt, the enforcement authority, and any other interested party [note 21].  Seven days notice should be given to the bankrupt [note 22].

Example applications are provided at Annex E for a company case and Annex F for a bankruptcy case.

 

9A.144 Third parties laying claim to the detained cash – no court application needed

The official receiver should not object to funds being returned to third parties where compelling evidence has been given that the cash belongs to that third party and had, at no time, belonged to the insolvent.

Where the official receiver has previously asked the magistrates’ court to note his/her interest (see paragraph 9A.135), he/she should write to the court confirming that he/she has no objection to the cash being released to the third party.

Typically, an interested third party may be the person from whom the monies were stolen or otherwise illegally obtained. 

 

9A.145 Compensation following the release of detained funds

Where cash has been seized from someone, and no forfeiture order is made, then the person from whom the cash was seized, or to whom it belongs, may apply to the magistrates’ court for compensation [note 1].  The amount awarded would normally represent the interest accrued on the monies in the account it has been deposited, but in exceptional cases, an additional amount can be awarded where the person has suffered other loss.  The award would be made against the agency responsible for seizing the cash, and would not be made where the authority had acted honestly, reasonably and properly. Claims for such compensation are rare.

 

9A.146 Compensation paid to bankrupt

Where compensation is paid to a bankrupt under PoCA02 [note 1] prior to the bankruptcy order, then it would vest in the official receiver as trustee [note 12].

Where a bankrupt is awarded compensation from an enforcement authority after the date of the bankruptcy order, for cash seized before the date of the order, the official receiver should claim it as after-acquired property within the 42 day period [note 15] [note 16] (see Chapter 31.8, paragraph 31.8.42 to 43). 

Generally, compensation paid under this provision would be of a financial nature, however if compensation was paid of a personal nature (in exceptional circumstances) relating to the pain and suffering of the bankrupt, then it is possible that the compensation may not be claimable (see paragraph 31.8.43 for guidance on this).

 

9A.147 Compensation in criminal cases

The magistrates’ court also has the power to make a compensation order against a defendant convicted of a crime (see paragraph 9A.84).  However the magistrates’ court must refer the matter to the crown court if a confiscation order is also required, see paragraph 9A.83 [note 23].

 

[Back to Part 4 – Civil recovery] [On to Part 6 – Revenue function]